MATERION CorpMTRN
MATERION Corp Income Taxes Disclosure
Income Taxes
Income (loss) before income taxes and income tax expense (benefit) are comprised of the following:
| (Thousands) | 2025 | 2024 | 2023 | |||||||||||||||||
| Income (loss) before income taxes: | ||||||||||||||||||||
| Domestic | $ | 63,872 | $ | 75,963 | $ | 94,589 | ||||||||||||||
| Foreign | 17,669 | (61,061) | 13,242 | |||||||||||||||||
| Total income (loss) before income taxes | $ | 81,541 | $ | 14,902 | $ | 107,831 | ||||||||||||||
| Income tax expense: | ||||||||||||||||||||
| Current income tax expense (benefit): | ||||||||||||||||||||
| Domestic | $ | 7,667 | $ | 19,258 | $ | 12,962 | ||||||||||||||
| Foreign | 4,154 | 6,354 | 6,172 | |||||||||||||||||
| Total current | $ | 11,821 | $ | 25,612 | $ | 19,134 | ||||||||||||||
| Deferred income tax (benefit) expense: | ||||||||||||||||||||
| Domestic | $ | (3,968) | $ | (14,107) | $ | (4,926) | ||||||||||||||
| Foreign | (1,135) | (2,491) | (2,079) | |||||||||||||||||
| Total deferred | $ | (5,103) | $ | (16,598) | $ | (7,005) | ||||||||||||||
| Total income tax expense (benefit) | $ | 6,718 | $ | 9,014 | $ | 12,129 | ||||||||||||||
We adopted ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, on a prospective basis beginning with the year ended December 31, 2025. The following table presents required disclosures pursuant to ASU 2023-09 and reconciles the U.S. federal statutory income tax amount and rate to our actual global effective income tax amount and rate for the year ended December 31, 2025:
| 2025 | ||||||||||||||
| Amount | Percent | |||||||||||||
| U.S. federal statutory rate | $ | 17,124 | 21.0 | % | ||||||||||
State and local income taxes, net of federal tax effect1 | 240 | 0.3 | ||||||||||||
| Foreign tax effects | ||||||||||||||
| China | ||||||||||||||
| Changes in valuation allowance | (1,009) | (1.2) | ||||||||||||
| Other | (256) | (0.3) | ||||||||||||
| Germany | ||||||||||||||
| Trade tax | 1,081 | 1.3 | ||||||||||||
| Other | (285) | (0.3) | ||||||||||||
| Other foreign jurisdictions | (225) | (0.3) | ||||||||||||
| Effect of changes in tax laws or rates enacted in the current period | — | — | ||||||||||||
| Effect of cross-border tax laws | ||||||||||||||
| Foreign derived intangible income deduction | (1,938) | (2.4) | ||||||||||||
| Other | 736 | 0.9 | ||||||||||||
| Tax credits | ||||||||||||||
| Research and development tax credits | (1,337) | (1.6) | ||||||||||||
| Other credits | (17) | — | ||||||||||||
| Changes in valuation allowances | — | — | ||||||||||||
| Nontaxable or nondeductible items | ||||||||||||||
| Depletion | (3,870) | (4.8) | ||||||||||||
| Impact of nonrefundable credits | (3,055) | (3.7) | ||||||||||||
| Other | 1,380 | 1.7 | ||||||||||||
| Changes in unrecognized tax benefits | (1,133) | (1.4) | ||||||||||||
| Other adjustment | ||||||||||||||
| Other | (718) | (1.0) | ||||||||||||
| Effective tax rate | 6,718 | 8.2 | % | |||||||||||
1 The state that contributes to the majority of the tax effect in this category is California.
The following table presents the required disclosures prior to our adoption of ASU 2023-09 and reconciles the U.S. federal statutory income tax rate to the actual global effective income tax rate for the years ended December 31, 2024 and December 31, 2023.
| 2024 | 2023 | |||||||||||||
| U.S. federal statutory rate | 21.0 | % | 21.0 | % | ||||||||||
| State and local income taxes, net of federal tax effect | 6.3 | 0.7 | ||||||||||||
| Effect of excess of percentage depletion over cost depletion | (26.6) | (3.4) | ||||||||||||
| Foreign derived intangible income deduction | (35.3) | (8.6) | ||||||||||||
| Research and development tax credit | (5.6) | (0.8) | ||||||||||||
| Impact of foreign operations | (4.8) | (0.4) | ||||||||||||
| Adjustment to unrecognized tax benefits | 5.4 | 2.7 | ||||||||||||
| Equity compensation | (13.0) | (1.8) | ||||||||||||
| Non-deductible officers' compensation | 14.7 | 2.0 | ||||||||||||
| Valuation allowance | 19.7 | 0.8 | ||||||||||||
| Impact of refundable credits | (17.5) | (1.6) | ||||||||||||
| Goodwill impairment | 97.1 | — | ||||||||||||
| Other items | (0.9) | 0.7 | ||||||||||||
| Effective tax rate | 60.5 | % | 11.3 | % | ||||||||||
The Company’s income tax expense was $6.7 million, $9.0 million and $12.1 million and the Company’s effective tax rate was 8.2%, 60.5% and 11.3% for the years ended December 31, 2025, December 31, 2024 and December 31, 2023, respectively. In 2025, the effective tax rate is lower than the U.S. statutory tax rate primarily due to percentage depletion, nontaxable credits and the foreign-derived intangible income deduction. In 2024, the effective tax rate is higher than the U.S. statutory tax rate primarily due to the impairment of non-deductible goodwill in the Precision Optics reporting unit. In 2023, the effective tax rate is lower than the U.S. statutory tax rate primarily due to a foreign-derived intangible income deduction optimization project completed, percentage depletion and excess tax benefits for stock compensation.
Deferred tax assets and (liabilities) are determined based on temporary differences between the financial reporting and tax basis of assets and liabilities. Deferred tax assets and (liabilities) recorded in the Consolidated Balance Sheets consist of the following:
| December 31, | ||||||||||||||
| (Thousands) | 2025 | 2024 | ||||||||||||
| Asset (liability) | ||||||||||||||
| Post-employment benefits other than pensions | $ | 848 | $ | 1,339 | ||||||||||
| Other reserves | 686 | 1,812 | ||||||||||||
| Deferred compensation | 4,703 | 4,626 | ||||||||||||
| Environmental reserves | 988 | 1,418 | ||||||||||||
| Inventory | 8,712 | 8,191 | ||||||||||||
| Research expenditures | 17,247 | 14,182 | ||||||||||||
| Revenue recognition | 21,643 | 19,937 | ||||||||||||
| Lease liabilities | 11,935 | 13,637 | ||||||||||||
| Interest expense carryforward | 7,154 | 11,668 | ||||||||||||
| Pensions | 1,082 | 1,762 | ||||||||||||
| Accrued compensation expense | 1,736 | 2,144 | ||||||||||||
| Net operating loss, capital loss and credit carryforwards | 11,459 | 10,822 | ||||||||||||
| Subtotal | 88,193 | 91,538 | ||||||||||||
| Valuation allowance | (7,227) | (8,892) | ||||||||||||
| Total deferred tax assets | 80,966 | 82,646 | ||||||||||||
| Depreciation | (41,089) | (43,390) | ||||||||||||
| Lease assets | (11,194) | (12,877) | ||||||||||||
| Amortization | (23,467) | (25,220) | ||||||||||||
| Unrealized gains | (249) | (1,437) | ||||||||||||
| Total deferred tax liabilities | (75,999) | (82,924) | ||||||||||||
| Net deferred tax assets/(liabilities) | $ | 4,967 | $ | (278) | ||||||||||
The Company had deferred income tax assets offset with a valuation allowance for certain foreign and state net operating losses, state investment and research and development tax credit carryforwards, and deferred tax assets that are not likely to be realized for certain of the Company's controlled foreign corporations. The Company intends to maintain a valuation allowance on these deferred tax assets until a realization event occurs to support reversal of all or a portion of the allowance.
In evaluating the realizability of deferred tax assets, management considers all available positive and negative evidence each reporting period. During the fourth quarter of 2025, a China entity achieved three-year cumulative profitability. Management concluded that this objective evidence supports the future realization of the related deferred tax assets and released a $1.0 million valuation allowance, resulting in a corresponding income tax benefit. Additionally, during the fourth quarter of 2025, $1.6 million of U.S. capital loss carryforwards expired. The Company reversed the associated deferred tax asset and offsetting valuation allowance, resulting in no impact to the effective tax rate or income tax expense.
At December 31, 2025, for income tax purposes, the Company had foreign net operating loss carryforwards of $39.4 million that do not expire, and $20.2 million that expire in calendar years 2027 through 2040. The Company had state net operating loss carryforwards of $14.0 million that expire in calendar years 2026 through 2041 and state tax credits of $4.5 million that expire in calendar years 2026 through 2040. A valuation allowance of $7.2 million has been provided against certain foreign net operating loss carryforwards, state net operating losses, and state tax credits due to uncertainty of their realization.
The Company files income tax returns in the U.S. federal jurisdiction, and in various state, local, and foreign jurisdictions. With limited exceptions, the Company is no longer subject to U.S. federal examinations for years before 2019, state and local examinations for years before 2021, and foreign examinations for tax years before 2020.
We operate under a tax holiday in Malaysia, which is effective through July 31, 2027. The tax holiday is conditional upon our meeting certain employment, sales, and investment thresholds. The Company did not have a tax benefit from the tax holiday in 2025.
A reconciliation of the Company’s unrecognized tax benefits for the year-to-date periods ended December 31, 2025 and 2024 is as follows:
| (Thousands) | 2025 | 2024 | ||||||||||||
| Balance at January 1 | $ | 4,320 | $ | 3,763 | ||||||||||
| Additions to tax provisions related to the current year | 17 | 292 | ||||||||||||
| Additions to tax positions related to prior years | 394 | 535 | ||||||||||||
| Reduction to tax positions related to prior years | (237) | (165) | ||||||||||||
| Lapses on statutes of limitations | (1,022) | (105) | ||||||||||||
| Balance at December 31 | $ | 3,472 | $ | 4,320 | ||||||||||
Included in the balance of unrecognized tax benefits, including interest and penalties, as of December 31, 2025 and December 31, 2024 are $3.5 million and $4.3 million, respectively, of tax benefits that would affect the Company’s effective tax rate if recognized.
The Company recognizes interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying Consolidated Statements of Income. Accrued interest and penalties are included on the related tax liability line in the Consolidated Balance Sheets. The amount of interest and penalties, net of the related tax benefit, recognized in earnings was immaterial during 2025, 2024, and 2023. As of December 31, 2025 and 2024, accrued interest and penalties, net of the related tax benefit, were immaterial.
We adopted ASU 2023-09 on a prospective basis for the year ended December 31, 2025 and have included the following table as a result of our adoption, which presents income taxes paid (net of refunds received) for the year ended December 31, 2025:
| Year Ended (In Millions) | 2025 | ||||||||||
| Federal Taxes | $ | 1,400 | |||||||||
| State Taxes: | |||||||||||
| California | 520 | ||||||||||
| Minnesota | 386 | ||||||||||
| Other state jurisdictions | 427 | ||||||||||
| Foreign Taxes: | |||||||||||
| Germany | 1,704 | ||||||||||
| Singapore | 828 | ||||||||||
| Japan | 660 | ||||||||||
| Taiwan | 508 | ||||||||||
| Netherlands | 361 | ||||||||||
| Other foreign jurisdictions | 204 | ||||||||||
| Total cash taxes paid | $ | 6,998 | |||||||||
Income taxes paid during the years ended December 31, 2024 and December 31, 2023 were approximately $11.5 million and $7.5 million, respectively.
As of December 31, 2025, the Company has not provided for deferred taxes on undistributed earnings from non-U.S. subsidiaries because such earnings are intended to be indefinitely reinvested. It is not practicable to estimate the amount of income and withholding taxes that might be payable if these earnings were remitted.
One Big Beautiful Bill
On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was signed into law in the U.S. The OBBBA includes a broad range of tax provisions affecting businesses including extending permanently, with modification, certain business and international tax provisions enacted as part of the Tax Cuts and Jobs Act of 2017 and accelerating the phase-out of certain Inflation Reduction Act tax incentives. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented in future years. The Company recognized the income tax effects of the OBBBA in 2025. The most significant impact in 2025 is the Company’s ability to utilize additional interest expense carryforward under the new interest limitation provisions of the OBBBA.
Government Tax Credits
Pursuant to The Inflation Reduction Act of 2022 (IRA), the Company is eligible for the Advanced Manufacturing Production Credit (production credit). The production credit provides an annual cash benefit for a portion of the production costs for the sale of certain critical minerals produced in the U.S. and sold during the year. The Company records the production credit as a reduction in cost of goods sold as the applicable items are produced and sold. U.S. GAAP does not address the accounting for government grants received by a business entity that are outside the scope of ASC 740. Our accounting policy is to analogize to IAS 20, Accounting for Government Grants and Disclosure of Government Assistance, under IFRS Accounting Standards. We recognize the benefit of the production credit by applying IAS 20 in pretax income on a systematic basis in line with its recognition of the expenses that the grant is intended to compensate.
Pillar Two
The Organization for Economic Co-operation and Development (OECD) introduced rules to establish a global minimum corporate tax rate, commonly referred to as Pillar Two. Numerous foreign countries have enacted legislation to implement the Pillar Two rules or are expected to enact similar legislation. Pillar Two legislation enacted in jurisdictions the Company operates in did not have a material impact on its effective tax rate or consolidated results of operations, financial position, or cash flows in 2025. We will continue to evaluate the impact of Pillar Two legislation on future reporting periods.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 12, 2026 | Showing above |
| 2024 | Feb 19, 2025 | |
| 2023 | Feb 15, 2024 | |
| 2022 | Feb 16, 2023 | |
| 2021 | Feb 17, 2022 | |
| 2020 | Feb 18, 2021 | |
| 2019 | Feb 13, 2020 | |
| 2018 | Feb 14, 2019 | |
| 2017 | Feb 15, 2018 | |
| 2016 | Feb 17, 2017 | |
| 2015 | Feb 25, 2016 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.